We stipulate the protection of all sight deposits. Redeemable and unprotected deposits are the root cause of bank runs. Due to digitalization and social media, speed and contagion risks have further increased. We argue that bank runs, traditionally seen as a disciplinary instrument, are not able to fulfill this function anymore in the light of implicit state guarantees. For that reason, Europe created a new class of debt instruments, so called bail-inable bonds, which are supposed to enable market discipline. MREL and the costs for deposit guarantee schemes serve to reduce moral hazard. We explain our proposal and discuss several counter arguments expressed in the public debate.
Vierteljahrshefte zur Wirtschaftsforschung, Vol. 92, pp. 51-60,
2023
